Jim Collins Publisher: New York: HarperBusiness, 2001.ISBN: 0066620996

This is a synopsis only.  RESULTS.com recommends you buy the original book.

Good is the Enemy of Great

The companies in the study had to satisfy the following criteria:

• 15-year cumulative stock returns at or below the general stock market

• Punctuated by a transition point

• Then cumulative returns at least 3 times the market over the next 15 years

• This weeded out the ‘one-hit-wonders’ and the average tenure of CEOs, removing the possibility that the company would crumble without the same leader.

• 6,000 articles, 2,000 pages of interview transcripts and about 10 people years of effort.

Research Findings:

• Majority of good-to-great company leaders came from the inside.

• They were not outsiders hired in to ‘save’ the company.

• Good to great companies focus on “what not to do” and what they should “stop doing”.

• Technology has nothing to do with the transformation from good to great. 

• Mergers and acquisitions do not cause a transformation from good to great.

• Good to great companies paid little attention to managing change or motivating people.

• Good to great transformations did not need any new name, tagline, or launch program.

• The leap was in the performance results, not a revolutionary process.

Three Stages of Breakthrough

1.    Disciplined People

• Level 5 Leadership

• First Who, Then What

2. Disciplined Thought

• Confront the Brutal Facts

• Hedgehog Concept

3. Disciplined Action

• Culture of Discipline

• Technology Accelerators

Level 5 Leadership

Level 1 Highly Capable Individual

• Makes productive contributions through talent, knowledge, skills, and good work habits

Level 2 Contributing Team Member

• Contribute individual capabilities to the group objective, works well in a group setting

Level 3 Competent Manager

• Organizes people and resources toward efficient and effective pursuit of objectives

Level 4 Effective Leader

• Catalyst, vigorous pursuit of vision, stimulates higher performance standards

Level 5 Executive

• Paradoxical blend of personal humility + professional will

• Humble, modest, self-effacing and understated

• Concern for the company’s success rather than one’s own personal fortune.

• Think in terms of “We” not “I”

• Do not want to be larger-than-life icons or heroes

• Ordinary people quietly working and producing extraordinary results

• Results-oriented. Do not tolerate mediocrity.

• Never allow nepotism or seniority.

• Will fire non-performing family members and friends.

• Are insiders. Worked many years inside the company or are from the family owners

• They are not saviors hired in from the outside.

• They are not show horses – rather they are plow horses

• Choose good successors because of their concern for the future of the company

• They want to see it endure for generations.

The Window and The Mirror

Level 5 Leaders:

• Give credit to outside factors when things go well, (looking out the window)

• Take full responsibility when things go poorly, (looking at the mirror).

Poor leaders of mediocre companies:

• Blame outside factors when things go poorly

• Take credit the company’s successes themselves

• Gargantuan personal egos that contributed to the demise or continued mediocrity of the company.

• Larger-than-life celebrity leaders who ride in from the outside are negatively correlated with going from good to great.

One of the most damaging trends in recent history is the tendency (especially of boards of directors) to select dazzling, celebrity leaders and to de-select potential Level 5 leaders.

First Who, Then What

Disciplined People:

First get the right people on the bus – and the wrong people off the bus

Then figure out what direction to drive the company

The right people will do the right things – regardless of the incentive system

• Good-to-great companies build deeply committed, strong management teams.

• Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.

• Mediocre companies = “genius with a thousand helpers” model - which fails when genius departs.

• No link between executive compensation – and the process of going from good to great.

• It is not how you compensate; it’s which executives you compensate in the first place.

• The right executives will do everything in their power to build a great company, not because of what they will get in terms of incentives and compensation, but because they simply cannot imagine settling for anything less. Their moral code is “Excellence for its own sake”.

• People aren’t your most important asset, the right people are.

• Place greater weight on character – rather than education, skills, or experience

• You can teach skills - but character, intelligence, work ethic, and dedication are ingrained

• People who did not fit the mold eventually quit or were told to find opportunities elsewhere.

Hiring Disciplines

• When in doubt, don’t hire. Keep looking.

• A company should limit its growth based on its ability to attract enough of the right people.

• When you know you need to make a people change, act.

• First, make sure you simply don’t have someone in the wrong seat.

• Move people to different seats to see where they might blossom

• Put your best people on your biggest opportunities, not your biggest problems.

• If you sell off your problems, don’t sell off your best people.

• Letting the wrong people hang around is unfair to all the right people

• Ask yourself, would you hire that person again?

• If they came to you saying she was leaving to pursue a new and exciting opportunity, would you be greatly disappointed or secretly relieved?

Confront the Brutal Facts (Yet Never Lose Faith)

Disciplined Thought

• Disciplined thought = confront the facts.

• When the effort to determine the facts is made, decisions become self-evident.

• People filter the brutal facts from a charismatic leader.

• They worry about how the leader will react rather than speaking up for the good of the company.

• Create a climate where the truth is heard

• Lead with questions, not answers. In order to gain an understanding of the facts,

• Use questions to gain information, not as a way to manipulate or put down others.

• Hold non-agenda forums or informal meetings to let current realities bubble to the surface.

• Engage in dialogue and debate, not coercion.

• Conduct autopsies, without blame.

• Build ‘red flag’ mechanisms = anything that will warn you before you lose your customers.

• The key lies not in better information, but in designing information that simply cannot be ignored

• Catalytic mechanisms (e.g. Granite Rock – “You pay us what you think the invoice is worth”).

The Stockdale Paradox

• Named after Admiral Jim Stockdale, the highest-ranking US officer to be taken prisoner in Vietnam

• Face the harshness of your current reality, but never lose faith you will prevail in the end.

• What separates great people or companies from the mediocre is not the absence of difficulties

• It is how they deal with the inevitable difficulties of life.

• If you have the right people, they will be self-motivated.

• The key is not to de-motivate them by ignoring the brutal facts of reality.

The Hedgehog Concept (Simplicity Within the Three Circles)

The 3 Circles

1. What can you be the best in the world at?

2. What drives your economic engine?

3. What are you deeply passionate about?

To achieve greatness, the three circles need to intersect (= BHAG)

• Focus on one simple, unifying concept, everything else is irrelevant.

• The fox, despite his cunning, fails to make prey out of the hedgehog.

• When the fox comes along, the hedgehog simply rolls up into a spiked ball.

• Foxes pursue many ends at the same time, and see the world in all its complexity

• Foxes are scattered - rather than focused on one simple organizing idea or principle.

• Hedgehogs simplify a complex world into a single basic organizing principle

• Everything else outside this basic concept is irrelevant and not worth wasting energy on.

• The key is to simplify - hedgehogs see what is essential, and ignore the rest.

• Good-to-great companies are hedgehogs - mediocre companies behave like foxes

• Stick with what you understand, and let your abilities, not ego determine what to attempt.

• Just because something is your core business doesn’t mean you can be the best in the world at it.

• If you cannot be the best in the world, then your core business cannot be your hedgehog.

Mediocre companies never asked the right questions

• Their strategies were based on bravado - not deep understanding.

• A hedgehog concept is a process, not an event.

• It took good-to great companies many years to clarify their hedgehog concepts.

Leadership Council: 

• Formed to gain understanding about important issues facing the organization.

• Each member has the ability to argue and debate in search of understanding

• Not from the egotistic need to win a point or protect a parochial interest.

• Each member retains respect for every other member without exception.

• 5- 12 people. Members come from a wide range of perspectives

• Not limited to members of the management team, nor is every executive automatically a member.

• The council is a standing body, not an ad hoc committee assembled for a specific project

• Does not seek consensus. Consensus decisions are often at odds with intelligent decisions.

• The responsibility for the final decision rests with the leading executive.

• Informal body - not listed on any formal organization chart or document.

A Culture of Discipline

Disciplined Action

• Requires people who adhere to a consistent system, yet the freedom to act within that framework

• Avoid bureaucracy and hierarchy.

• Create a culture of discipline with an ethic of entrepreneurship.

• Hire self-disciplined people willing to go to extreme lengths to fulfill their responsibilities.

• Create a “Stop Doing” list as well as a “To-do” list.

• Unplug any extraneous activities. Have clear constraints.

• Hire people who don’t need to be managed, so you manage the system, not the people.

• Disciplined People 􀃆 Disciplined Thought 􀃆 Disciplined Action

Technology Accelerators

• If you think technology alone holds the key to success, then think of the Vietnam war. The Americans lost to the Vietnamese despite superior technology.

• Good-to-great companies react to new technology with calm, quiet, and deliberate steps in the right direction, sticking closely to their hedgehog concepts.

• Mediocre companies react in a frantic, fearful, Chicken Little manner.

• Great companies respond to technology with creative thinking as to how to create greater results, mediocre companies react to technology with fear of being left behind.

• Great organizations avoid technology fads and bandwagons, yet they become pioneers in the application of carefully selected technologies.

• Does the technology fit in with your Hedgehog concept? If yes, you need to pioneer in the application of that technology. If no, then you can ignore it entirely.

• Good-to-great companies use technology as an accelerator of momentum, not a creator of it.

• Use technology to accelerate momentum (of your hedgehog concept), not create momentum where there was none. Crawl – walk – run!

The Flywheel and the Doom Loop

The Flywheel:

• Like pushing a massive flywheel to acceleration is how good-to-great companies progress

• There was no defining action, innovation, launch event, clever tagline or miracle moment.

• The breakthrough came from an accumulation of consistent effort over time.

• An overnight success is usually the result of a decade of hard work

• People will naturally keep pushing the wheel in 1 direction when they see the tangible results

The Doom Loop:

• A new direction, new leader, new acquisition comes in

• Flywheel comes to a screeching, grinding halt.

• The company then changes direction, pushing it the other way.

• The results are disappointing, which leads to reaction without understanding what went wrong

• Then a new fad, leader or event appears to try save the company

• They push the wheel another way, and so forth.

• Mergers & Acquisitions – 2 mediocre companies joined together does not make 1 great company

• You cannot buy your way to greatness

From Good-to-Great to Built to Last

• Good-to-Great is not a sequel to Built to Last. It is actually a prequel.

• Discover your core values and purpose beyond just making money

• Combine this purpose with the dynamic of: preserving the core + stimulate progress,

• What is the difference between a good BHAG (big hairy audacious goal) and a bad BHAG?

• Great companies don’t exist merely to deliver returns to shareholders – they want to be GREAT!

• To aspire to greatness is to have the satisfaction that your time on earth was well spent

• If you have to ask “why should we make it great?” you are in the wrong line of work

• Clock building not time telling – great leaders build a company that can tick along without them, rather than being needed to tell the time.

John L. Nesheim
Publisher: Saratoga, CA: Electronic Trends Publications
ISBN: 0914405713

Business Plan:  

• Confidentiality of your Intellectual Property is a big concern

• Venture Capitalists won’t sign Non Disclosure Agreements yet they are a major source of leaks

• VC’s may be just interviewing you because they have invested in a competitor already

• Be careful of who you give business plan to and ask for its return (un-copied) 

Dealing with Venture Capitalists 

• Choose VC’s as carefully as you would top employees – you need to have complete faith in them

• Make sure they are experienced and focused in your area of business (not generalists) Check their references (vital) – talk to other startup CEO’s they have worked with to get a warts and all appraisal of their professionalism (don’t let yourself be fooled by their flattery or by the first one that shows you interest – reference check all firms you do business with – including investment bankers etc when preparing for IPO’s)

• Start looking for capital well before you need it!! (Don’t wait until you are under pressure to pay salaries)

• Get a personal introduction to VC’s if possible

• Visit them first – do not provide business plan until after 1^st meeting

• Query them for conflicts of interest – be suspicious

• Tell your story verbally only – you can control the information flow

• Keep handouts to a minimum

• Never leave any proprietary material

• Focus on the executive summary only

• Negotiate – don’t teach!  If they do not understand your concept straight away they will not fund it so don’t waste your time

• Treat every meeting as if it were a future negotiation for money and answer questions accordingly (ie if they get you to admit any weaknesses, they will use your admissions later as bargaining chips for a lower share price or greater ownership %)

• Make them think they are under pressure to act as you have hot interest from other VC’s (get as many as possible chasing you!)

• Never count the cash until you see it in your bank account – promises mean nothing!

• Expect a lot of “No’s” VC’s only fund 6/1000 plans they see

• 10% of startups that succeed make up for the 90% that fail in the VC’s portfolio. You are paying for their bad investments – hence why they are looking to highly dilute your ownership to maximise their gain

• They are looking for a Return On Investment of 20%+

• They get preferred shares (preferential tax treatment / first call on assets in bankruptcy) which are converted to common shares at IPO or sale of company

• If you suspect that they desperately need a winner (ie your company’s hot future prospects) then you have a better chance of retaining more of your company in the negotiations (thus reducing your cost of capital)

What Venture Capitalists are looking for: 

• A large, rapidly expanding market

• Competent management

• A revolutionary / unique idea or technology that can be commercialized

• Sustainable competitive advantage

• Reasonable purchase price per share
  

• They are looking for a complete, high calibre management team with proven track record or startup experience (they will do reference checks etc)

• They may aim to appoint their own CEO and want to get control of board of directors to manage their risk (You will need to fight for your own interests unless you agree it is in the company’s best interests. This can be difficult to let go of leadership when you are emotionally attached)

• The flip side is that they often have vast expertise and contacts to share that can make a positive difference, and can help you avoid mistakes – and they want the kudos of backing a winner

• When things are going great they are supportive and can expedite growth

• When times are tough they can be ruthless (“vulture” capitalists) and will do whatever it takes to protect their money (including replacing the founders)

• They will want to get you to IPO – or sell as fast as possible to get their money back (even though this may be a distraction, or not in its best interests of the business at that particular time)

• They will endeavour to exert control over the following:  salaries / employee share options / structures of deals with suppliers and customers / veto over & timing and pricing of additional capital rounds / choice of CEO & CFO / monthly cash burn rates / approval of budgets and operational plans

  
  

• Strategy – they will want to know:

  • Product Development

  • Positioning

  • Size of the market

  • Path to market

  • How you are going to get ahead

  • How you are going to stay ahead when large competitors enter the market

  • Product evolution / development pipeline 

  • 5 year financial projections

Presenting to Venture Capitalists  

• Be persistent – expect to have to call/email them 6 x before reply for appointment

• May have to present to 20 VC’s before you get real interest

• Don’t rely on one source – stimulate competition amongst several VC’s

• Brush up on your negotiation skills / get professional advisor to accompany you if necessary

• Do not present anything proprietary at the first meeting

• Present executive summary – 15-20 PowerPoint slides max

• Be able to discuss your presentation in detail and be able to back your financial projections

• Most sales estimates are overly optimistic and VC’s will grill you on these

• Most capital estimates and development times are grossly underestimated (VC’s will double your estimates in their valuation calculations)

• Expect them to ask a lot of negative sounding questions

• Be able to back your share price valuations but be willing to negotiate

• Rehearse and prepare your presentation and likely question responses prior to the real thing (don’t wing it – they are seeing great presentations every day)

• Ask for double the funding you want or think you are going to get

• Even if you get a refusal, ask for their feedback on how the business plan can be improved

• Get your business plan back!

The Core Team:  

• Pick the most outstanding talent that you can afford in sync with your company culture

• Talent attracts talent

• Try to get a “name” CEO

• Try to get “name” investors

• Team is usually built in the following order; Technical experts, CEO, Marketing, Sales (business development) , Operations, Finance

• Outsource key roles / contractors if necessary – consider using share options to keep costs down

Ownership / Dilution / Negotiation / Valuation: 

• Make sure your lawyer is very experienced in venture capital and can structure a deal today that will take into account likely scenarios tomorrow

  • What % of the company the founders will own at IPO time

  • What each share will be worth at IPO time

  • How many shares will be available to the public at IPO

  • (Ownership%) x (total # of shares outstanding) x ($/share) = $wealth

• Create classes / layers of jobs to determine share options allocations for new hires

• Founders on average own only 4% of their companies by the time they get to IPO (can be higher in companies with low capital requirements)

• Get agreement from founders how much they are willing to dilute their ownership prior to starting any funding negotiations

• Founders get greater % of ownership than those joining later (regardless of how much more experienced or capable the new hires may be), to compensate for the founders’ risk (personal funds invested / leaving employment before money is raised / creating business plan / convincing others to invest in or join their quest / staking their reputations on the business outcome)

• Ensure enough shares are set aside to attract talented employees later and tie them in to the success of the company with share options

• Get agreement on how much ownership you are willing to give up to VC’s in return for what level of investment

• The greater amount of capital to be raised = the lower the % of ownership retained by the founders

• VC’s typically own 60-70% of a company by IPO time (but negotiate your own terms)

• The quicker you can get to IPO, typically the less ownership is given away

• Each round of funding typically adds another VC investor to the board

• Be wary of any veto rights VC’s may insist on as they can be restrictive later on

• The founder/CEO should be responsible for securing (additional) funding. Do not count on lead VC’s to do it on your behalf, they have other interests

• Be honest - keep VC’s informed of slippage in terms of development times & budgets and payroll requirements to maintain your credibility with them

• It is dangerous (and bad form) to raise money prior to releasing hidden bad news – you expose yourself to legal action and investor resentment all round

• Aim to exist on low salaries until the company becomes profitable (keep lean and mean) 

Jim Collins,
Publisher: Jim Collins
ISBN: 0977326411 

This is a synopsis only.  RESULTS.com recommends you buy the original book.

Every institution, no matter how great, is vulnerable to decline.

There is no law of nature that the most powerful will remain at the top. Any company can fall and most eventually do.

Decline is largely self-inflicted, and the path to recovery lies largely within our own hands.  Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.  

Some companies do indeed recover - in some cases coming back even stronger

Decline can be avoided.  Decline can be detected. Decline can be reversed.

By understanding the symptoms of these 5 stages of decline, leaders can use them as a diagnostic to take remedial actions to reduce their chances of falling to the bottom.

The 5 stages of decline:

Stage 1: Hubris Born of Success

Stage 2: Undisciplined Pursuit of More

Stage 3: Denial of Risk and Peril

Stage 4: Grasping for Salvation

Stage 5: Capitulation to Irrelevance or Death

Stage 1: Hubris Born of Success

Success, Entitlement, Arrogance

• Success is viewed as “deserved” rather than fortuitous, fleeting, or even hard earned in the face of daunting odds

• People believe that success will continue no matter what the organization decides to do, or not to do.

Neglect of a primary flywheel

• Company becomes distracted by extraneous threats and opportunities

• Neglects to focus on keeping a primary flywheel turning

“What” replaces “Why”

• Thinking, “We’re successful because we do these specific things”

  • When they should be thinking, “We’re successful because we understand why we do these specific things - and under what conditions they would no longer work”

Decline in learning orientation

• Leaders lose their inquisitiveness and learning orientation

  • Great leaders, no matter how successful they become, maintain a learning curve as steep as when they first began their careers.

Stage 2: Undisciplined Pursuit of More

Unsustainable quest for growth / confusing big with great

• Success creates expectations for more and more growth

• Puts strain on people, culture, and systems

• Firm is no longer able to deliver excellence consistently

Undisciplined, discontinuous leaps

• The firm makes dramatic moves that fail at least one of the following three tests:

1. Do they ignite passion and fit with the company’s core values?

2. Can the company be the best in the world at these activities?

3. Will these activities help drive the company’s economic or resource engine?

Declining proportion of right people in the right seats

• Losing the right people and/or

• Growing beyond the organization’s ability to get enough of the right people to execute with excellence

Easy cash erodes cost discipline

• The organization responds to increasing costs by trying to grow revenues rather than increasing its financial discipline.

Bureaucracy subverts discipline

• Bureaucratic rules subverts the ethic of “freedom and responsibility” that marks a culture of discipline

• People increasingly think in terms of “jobs” rather than responsibilities.

Problematic succession of power

• Leadership - transition difficulties

• Poor succession planning

• Failure to groom excellent leaders

Stage 3: Denial of Risk and Peril

Amplify the positive, discount the negative

• Tendency to discount or explain away negative data

• Failing to see that the data indicates something may be wrong with the company;

• Leaders highlight and amplify external praise and publicity.

Big bets and bold goals without empirical validation

• Leaders set audacious goals and/or make big bets that aren’t based on accumulated experience,

• Or worse, they make bets that fly in the face of the facts.

Incurring huge downside risk based on ambiguous data

• When faced with ambiguous data and decisions that can have a potentially severe or catastrophic downside, leaders take only a positive view of the data and ignore the downside risks

Erosion of healthy team dynamics

• Decline in the quality and amount of dialogue and debate

• Shift toward either consensus or dictatorial management

  • Rather than the ideal which is a process of argument and disagreement followed by unified commitment to execute decisions.

Externalizing blame

• Rather than accept full responsibility for setbacks and failures, leaders point to external factors or other people to affix blame.

Obsessive reorganizations

• Rather than confront the brutal realities, the firm chronically reorganizes

• People become preoccupied with internal politics rather than external conditions.

Stage 4: Grasping for Salvation

A series of silver bullets

• Tendency to make dramatic, big moves, such as:

  • a “game changing” acquisition

  • a discontinuous leap into a new strategy

  • an exciting innovation, in an attempt to quickly catalyze a breakthrough

  • lurching about from program to program, goal to goal, strategy to strategy, in a pattern of chronic inconsistency.

Grasping for a savior leaders

• The board responds to threats and setbacks by searching for a charismatic leader and/or outside savior.

Panic and haste

• Instead of being calm, deliberate, and disciplined - people exhibit hasty, reactive behavior, bordering on panic.

Radical change and “revolution” with fanfare

• The language of “revolution” and “radical” change characterizes the new era

• New programs! New cultures! New strategies!

• Leaders spending a lot of energy trying to align and “motivate” people, engaging in buzzwords and taglines.

Hype precedes results

• Instead of setting expectations low - underscoring the duration and difficulty of the turnaround - leaders hype up their new visions

• They “sell the future” to compensate for the lack of current results, initiating a pattern of overpromising and under delivering.

Initial upswing followed by disappointments

• There is an initial burst of positive results, but they do not last

• The organization achieves no buildup, no cumulative momentum.

Confusion and cynicism

• People cannot easily articulate what the organization stands for

• Core values have eroded to the point of irrelevance

• The organization has become “just another place to work” or get a paycheck

• People lose faith in their ability to triumph and prevail.

• People become distrustful, regarding the company visions and values as little more than PR and rhetoric.

Chronic restructuring and erosion of financial strength

• Each failed initiative drains resources

• Cash flow and financial liquidity begin to decline

• The organization undergoes multiple restructurings

• Options narrow & strategic decisions are increasingly dictated by circumstance.

Stage 5: Capitulation to irrelevance or death

-------------

APPENDIX 5: What Makes for the “Right People” in Key Seats?

The right people fit with the company’s core values

• Great companies build almost “cult-like” cultures

• Those who do not share the institution’s values find themselves surrounded by antibodies and are ejected like a virus

• People often ask, “How do we get people to share our core values?” The answer: you don’t.  You hire people who already have a predisposition to your core values, and hang on to them.

The right people don’t need to be tightly managed

• The moment you feel the need to tightly manage someone, you have made a hiring mistake.

• If you have the right people, you don’t need to spend a lot of time “motivating” or “managing” them.

• They’ll be productively neurotic, self-motivated and self-disciplined, compulsively driven to do the best they can because it’s simply part of their DNA.

The right people understand they do not have “jobs”; they have “responsibilities”

• They grasp the difference between their task list and their true responsibilities.

• The right people can complete the statement, “I am the one person ultimately responsible for…”

The right people fulfill their commitments

• A culture of discipline

• People view commitments as sacred - they do what they say they will do

• Equally, this means that they take great care in saying what they will do, careful to never over commit or to promise what they cannot deliver.

The right people are passionate about the company and its work

• Nothing great happens without passion, and the right people display remarkable intensity and passion.

The right people display “window and mirror” maturity

• When things go well, the right people point out the window, giving credit to factors other than themselves

• They shine a light on other people who contributed to the success and take little credit themselves

• Yet when things go wrong, they do not blame circumstances or other people for setbacks and failures; they point in the mirror and say, “I’m responsible.”

 

How to Win Friends and Influence People -  Dale Carnegie, Dorothy Carnegie, Arthur R Pell

In Search of Excellence- Lessons from America's Best-Run Companies -  Tom Peters, Jr Waterman, Robert H

Robert B. Cialdini
Publisher: Glenview, Ill: Scott, Foresman
ISBN: 0673189422


This is a synopsis only. RESULTS.com recommends you buy the original book.


Short Cuts – The Power of Perception

• In today’s busy, information overload society people take mental “short cuts” to save themselves from thinking or doing their own research

• E.g. - people perceive that higher price = higher quality.

• Many times the same goods (ones where people have nothing objective to compare their value to) can be dramatically increased in price and suddenly they will achieve dramatic increase in sales.

• (Chivas Regal Scotch Whiskey struggled as a brand until they raised the price far above its competitors – then sales skyrocketed)

• A discount coupon even if it offers no real savings triggers the same number of people using it – than a coupon that offers significant savings

• People believe that if an expert says so, it must be true and don’t pay attention to the details in question

Instant Influence

• The speed of change and the volume and complexity of information means that we are increasingly unable to process all the relevant information necessary to make sound decisions

• We tend to make decisions based on a small subset of information which we extrapolate to represent the total

• Marketers and governments know this - hence they know that we will unconsciously react to the Laws of Influence and not even realise what is happening or why we are doing what we are doing

• Learn the laws of influence – and be more aware of what is really going on around you in your interactions with people, advertising and the media.

• Ask yourself – What is happening here? What are their motivations? How are they trying to influence me? What are my choices? What do I really want?

“Because”

• The word “because” triggers an unconscious compliance response

• When we ask someone to do something they we will be likely to comply if we provide a reason – any reason

• The reason itself is inconsequential in eliciting the response

• E.g. “Can I please go first, because I am in a hurry” is just as likely to get people to stand aside as having some more plausible long-winded reason

The Law of Reciprocity

• The rule says that we should try to repay in kind what another person gives us

• Human civilisation evolved by people giving goods and services (without fear of loss) so in return they could expect to be repaid with other goods and services.

• A feeling of future obligation to repay was trained into us by socialization.

• People in general do not like to feel indebted to others and will want to return the favour as soon as possible

• There is a universal dislike in all cultures for people who take and do not give in return

• The Hare Krishna organisation’s incredible economic growth is fueled by reciprocity – they give a free “gift” (a book or even a flower) and refuse to take it back. Then they ask for a contribution to their cause

• There is a strong cultural pressure to reciprocate a gift – even an unwanted one (ie Xmas cards)

• After accepting a free “gift” customers are more willing to purchase goods / services they would have otherwise declined

• Successful politicians provide favours to other politicians and store them for when they need to call on a favor in return. The recipients of their favours feel obligated to vote for their legislation later

• Medical researchers funded by drug companies feel obliged to favourably recommend the company’s drugs

• Samplers in supermarkets invoke this rule immediately when you taste the food, and there is a subconscious compulsion to repay them by buying the product

• Free trial periods have the same effect. People feel obligated to pay for and keep the products once they have used them

• Free consultations and seminars use this principle also

• Fundraising dinners have learned it is better to wait until you have had the meal before they ask for donations

• A woman who allows a man to buy her drinks is immediately judged by him as being more sexually available to him

• Another way to invoke reciprocity is to combine the Law of Contrast. Ask someone to do a favour for you (the reverse of doing a favour and expecting one in return). Ask for a big favour that is unlikely to be agreed to. When they decline, then make a concession by asking for a smaller favour (the favour you actually wanted all along) and you influence the other party to reciprocate by making a mutual concession (ie they will likely comply with your request). Unions do this in their wage demands. Children ask for $10, get a refusal, then ask for $5 (which is what you really wanted), and the parents will likely comply

• Another version of this is where the door to door salesperson does not get the sale, but the prospect is then willing to provide them the names of their friends as customer referrals as a concession.

The Law of Commitment and Consistency

• Once we make a choice or take a stand, we encounter internal and external pressure to behave consistently with that commitment

• We justify our decisions in our minds and continue to behave according to our earlier decisions

• In most circumstances it is commendable to say “my word is my bond”, but the drawback is that it binds us to old ways of behaving that may not be relevant anymore

• We use this law as a shortcut to not have to think through issues every time

• Salespeople invoke this law by saying to prospects, “If I could get you the model you want and the price was right, would you be prepared to buy today?”

• The strategy is to “start small and build”. Get a small commitment, then people will feel the need to be consistent with their earlier decision when you ask for a bigger commitment later

• The law of consistency is sometimes called the “foot in the door technique”. Get them to say yes to you demonstrating your product to them, and you are more likely to make the sale

• Charities know people who have already donated once, are likely to say yes in the future

• Therefore be careful about agreeing to what seem to be trivial requests. It can make you feel compelled to comply with larger requests that are only remotely connected with the original request

• During the Korean War the Chinese would isolate an American POW and over several hours of (friendly) interrogation get him to admit that the USA was not perfect. From there they would build on his commitment and get them to write & sign a small statement about how capitalism had its faults in return for some cigarettes etc. When the POW returned to the barracks he would hear his essay being read aloud over the prison camp speakers, and his comrades would label him a traitor. He would defend his actions, but from that point on would be forever shunned by his fellows, and eventually become a willing collaborator with the enemy, willing to spy on his comrades

• Beware of signing petitions – it will subconsciously influence your behaviour in the future to be consistent with your earlier position on this subject

• People use this law to label people and then control them. Once you accept someone’s label for who or what you are, you feel obligated to behave according to this label. I.e. “Do you consider yourself to be a generous person? Great then you’ll be willing to help me out with ….etc”

• Give people a reputation to uphold, and you can wield great influence

• Getting customers to fill out the sales contract, prevents them from backing out from paying later

• Writing down goals, increases your commitment to taking action toward their attainment – telling others about your goals heightens the commitment

• Competitions like “Tell us why you like our product in less that 100 words and you’ll win a prize” are powerful influence tools. Once you have entered you will always feel compelled to choose the product

• Groups like Weight Watchers and Alcoholics Anonymous are successful because they get people to publicly announce their intentions – and thus they are more likely to follow through

• The more effort that goes into a making commitment, the greater the ability to influence the person who made it (eg inviting someone to come to your office for a free consultation etc)

• When advertising, you are best to not show prices. Even getting prospects to phone up is a commitment that you can use to your advantage

• The more active, public and effortful you can get people to make the commitment, and the more they make it of their own free will (no coercion) the greater the influence on their behaviour

• Car dealers are notorious for “low balling”. They sell you a “cheap car”, then once you have made a commitment to buy (or even visit the showroom!) you realise that you have to pay extra if you want a stereo, air conditioning etc. (The law of Contrast also comes into play. After you have spent $20,000, an extra $200 doesn’t seem so much)

The Law of Social Proof

• We determine what is correct by finding out what other people think is correct

• We view a behavior as being correct to the degree we see others performing it (especially those we identify with as being similar to us in appearance or background)

• The greater the number who believe in an idea, the more we think they must be correct – that perhaps they know something we don’t

• Canned laughter during sitcoms increases the humorous responses of the audience and their rating of the humor of the TV show – even when they know the laughter is not real

• Bartenders / buskers put some of their own money (gold coins / notes) in their collecting jars giving the impression that everyone is tipping generously & influencing others to do likewise

• Evangelical preachers / magicians / comedians sow their audience with ringers to act in a prescribed manner and thereby influence the rest of the audience to do likewise

• Nightclubs deliberately create queues so that people think it must be popular

• Advertising uses social proof to influence us when it claims “fastest growing” “most popular” “trendiest” “number one” etc

• Advertisers also try to use people who look just like the intended target user for the product – so people who identify with the actors in appearance and background will be influenced to view the product favourably

• Suicides / murders / accidents tend to invoke copycat occurrences – the more publicity they get, the more similar occurrences happen soon afterwards

• When newspapers publicise a young person’s suicide, youth suicide increases – including youth vehicular suicide.

• 4 people looking skyward will get 80% of all passersby to do likewise

• Children shown violent programs will afterwards act in a more harmful way to each other

• In any situation where we are unsure of ourselves we look to others for guidance – hence the common occurrence where an accident victim lying on the footpath in need of help is ignored by passersby

• In an emergency situation social proof can often be completely wrong. Many people have died in fires as a result of the group not reacting to fire alarms.

• The Jonestown cult suicides – the 910 members were isolated from society and took their lead from the group leaders to willingly drink cool aid laced with poison

• Farmers know that if you can get the herd leader animal moving in a certain direction, the rest of the herd will follow

The Law of Friends (Liking) & the Law of Association

• We tend to say yes to the requests of people we know and like

• Network Marketing (MLM) / Tupperware etc use this law to successfully sell product

• Even a mention of a friend’s name can influence a buying decision – hence the power of salespeople getting referrals “Your friend Mr. X suggested I call you as he thought you might be interested in this product”. Turning salespeople away in this case is more difficult – it’s almost like rejecting the friend

• We are genetically programmed to “like” attractive people – and as such we tend to comply with their requests.

• Therefore if we wish to influence people – the more we can enhance our attractiveness the more effective we will be

• The “halo effect” – we automatically believe that good looking people have the traits of talent, kindness, honesty and intelligence. This unconscious reaction makes us assume “good looking = good”

• Good looking people are more likely to get your vote, get hired and get favourably treated by the justice system

• Advertisers frequently feature good looking people promoting their products

• A fashion model / celebrity lends their perceived positive traits to the product they are promoting (the Law of Association) – thus we like it more

• We also tend to like people who are similar to us in appearance, dress, behaviour, political allegiance etc.

• Even little things, like if their name is similar to ours in direct marketing letters we tend to be more likely to respond favorably

• Good salespeople know how to find common interests with their clients and appear more likeable (as well as mirror client’s posture / vocal patterns etc)

• They also “take our side” and “do battle with the boss” to get a good deal for us

• Good cop / bad cop. The suspect sees the good cop as being on his side and is more likely to confess to him (the law of Contrast also applies here)

• Most people are suckers for flattery – we tend to believe praise and increasingly like those who provide it

• Conversely there is an unconscious tendency to dislike the person bringing us unpleasant information “shoot the messenger”.

• Therefore association with good things makes us more likeable, association with bad things makes us less likeable

• “We will be known by the company we keep”

• Sports fans see the team they are supporting as representing “them”. If the team wins “they” feel superior by association

• People desire to live in prestigious neighbourhoods, attend the best schools, eat at the best restaurants, associate with the “in crowd” – to invoke the law of association

• The desire to bask in the reflected glory of others (the Law of Association) taken to the extreme does suggest low self esteem and external motivation however (groupies / rabid sports fans / stage mothers)

• Having team goals in a company leads to greater cooperation and liking for each other – than individual competition

The Law of Authority

• We unconsciously obey symbols of authority without question

• We are trained as children that obedience to authority is “right” and disobedience is “wrong”

• People have an extreme willingness to go to almost any lengths to obey the command of authority (hence the Nazis convincing the German’s to persecute the Jews etc)

• Nurses obey Doctor’s prescriptions – without thinking or questioning

• Advertisers use people posing as Doctors or Scientists to promote their product – the white coat uniform adds to the influencing effect

• Uniforms, titles, qualifications and other symbols of authority (ie the well tailored business suit and highly polished shoes) have the same unquestioning influence effect

• Physical size also conveys authority (as it does in the animal kingdom) – hence high heels, shoulder pads, and the fact that tall people are more likely than short people to rise to positions of leadership

• Fine clothes, jewelry, cars and possessions convey authority.

• Authority is easily faked - ask yourself, “Is this person really an expert or is it just superficial appearance? What is the evidence of their authority? How truthful can we expect them to be in the circumstances?”

• Clever influencers will argue against their own interests to assure us of their sincerity – this helps “prove” their honesty to us. Invariably of course the drawbacks will be outweighed by the advantages. “We’re more expensive – but we’re worth it” “Listerine – the taste you hate twice a day”

• Clever waiters will say – “The dish you chose is not as good tonight at usual. Might I suggest instead…..” (This invokes several laws – liking / trust / reciprocity / authority)

• Letters of recommendation obtain the most favourable results when one minor negative comment about the candidate is included – rather than wholly positive comments only

The Law of Scarcity

• Opportunities seem more valuable to us when they are less available

• Rarity increases the value of an item (jewels / art / stamps)

• People are more motivated by the fear of losing something than they are of gaining something

• A ringing phone is more compelling than the conversation we are having – what are we missing if we do not take the call?

• Marketing that implies what we will lose if we don’t act - is more compelling to purchasers than outlining what we will gain

• “We have only one left in stock / Offer expires this Friday / Hurry while stocks last / for a limited time / Buy now, or pay full price when the next shipment arrives / I am booked out – but if I move things around I may be able to fit you in on Friday” etc

• Whenever our free choice is limited, or we are prevented from accessing something - we react by wanting it more (censorship / prohibition)

• This tendency starts at age 2 (“The terrible twos”) – where we start to resist being told what we can and can’t have, and rebel against constraints on our freedom. Children constantly test the limits of their freedoms (a wise parent provides consistent boundaries). The teenage years are another especially rebellious time – although we tend to react against restrictions to our freedoms all our lives

• Adult tools of influence like persuasion and preference are more effective tools with teenagers than prohibitions and controls

• Taking something away that was previously given intensifies desire for its return

• Mikhail Gorbachev gave the Russian people increased freedoms (the policies of glasnost and perestroika). The KGB staged a coup placing Gorbachev under arrest and pledged to reinstate the old suppressive order. The people revolted at the prospect of losing their newfound freedom and took to the streets to secure Gorbachev’s release.

• The lesson applies to families also – the parent who grants privileges and freedoms, and enforces rules erratically invites rebellion from the children when they try to reinstate the rules

• Censorship makes people want the information even more. In fact they become even more sympathetic to the information even though they have yet to see it!

• For fringe groups the clever influencing tactic is to get your views officially censored, then publicise the censorship

• Judges ruling evidence as inadmissible is the same as censorship – the jurors unconsciously place more weight on this evidence

• Information does not have to be censored for us to value it more; it need only be scarce

• We want things more when we are in competition for it “While stocks last!” “I have another person interested in making an offer” (also “feeding frenzies” at January department store sales / buyers getting emotional & competitive and over paying at auctions)

• When a new admirer appears on the scene, relationship partners become especially possessive

• Auctioneers fabricate dummy bidders to invoke scarcity

• Our typical unconscious reaction to scarcity & competition hinders our ability to think rationally as to an item’s real worth and we tend to overpay

• If you are a seller – give all your prospective buyers the same appointment time to view your product to invoke scarcity and competition amongst them

Doug Hall,
Publisher: Emmis Books
ISBN: 1578601797

This is a synopsis only. RESULTS.com recommends you buy the original book.

Business success is not random. There are reproducible scientific lessons that can help you win more, lose less, and make more money with your products, services, sales and advertising efforts

75% of new businesses fail within 5 years. 75% of new product / service launches fail - and are discontinued within 2 years. A 25% chance of success is terrible odds. Most business owners will have a greater probability of success if they went to the casino and gambled their investment

Working harder won’t do it. You need to think smarter.

Those who excel in marketing, at a reproducible level (anyone can get lucky once), are students of the marketing craft and understand the strategies that have higher probability of success. They are professionals who study the literature.

Research for this book comes from the analysis of more than 6000 client groups, and more than 1,200,000 customers. The findings apply to both products and service

Canadian philosopher Marshall McLuhan once said, “The medium is the message”. Research has proved this to be wrong. It is the message that motivates the customers, not the medium. It is what you say, not where you say it that matters most. The message is king.

It is important to note, that no amount of communications enhancement will help where the products or services are not competitive.

Who, Why, What, How.

Target market = “Who” your ideal customers are

Dramatic and Meaningful Point of Difference = “Why” your target customers should care

Overt Benefit = “What” you are offering to your target market customer

Real Reason to Believe = “How” you are going to make good on your promise

Target Market

Target market = “Who” your ideal customers are

The rule = “Delight the few to attract the many”

• Your target market are the customers you seek to delight and excite the most with your offer

• Your target market are your most profitable customers with the most potential for growth

• When you have a clear target market

  • Your product and service design has more clarity and focus

  • Your customer communications are much more effective

• Note – while the target market is the centre of your business “bulls eye” it does not necessarily mean they will make up most of your sales volume

• Whenever you focus on a specific target market you immediately enhance customer perception of you as being an expert – and experts can expect to get paid more and earn higher margins

3 Laws of Marketing Physics

1. Dramatic and Meaningful Point of Difference

2. Blunt Overt Benefit

3. Real Reason to Believe

Notes about the 3 Laws of Marketing Physics:

Spending more money is rarely the answer to more growth.

It’s the quality of your idea that matters. No amount of communications enhancement will help where your products or services are not competitive.

Successful selling requires 2 simple tasks:

1. Making the effort to contact potential target market customers

2. Delivering an effective message

The research in this book will help you to deliver an effective message.

You still need to get out there and make the effort!

Dramatic and Meaningful Point of Difference

“Why should I care?”

Dramatic and Meaningful Point of Difference = “Why” your target customers should care

Increases your chances of marketplace success 353%

• Your mission is to create a monopoly – by being so dramatically different to your competitors

• If you’re not meaningfully unique, you’d better be cheap

• Without uniqueness you are a commodity and will only achieve commodity profit margins

• For uniqueness to be effective it must be dramatic and meaningful

  • It must be relevant to the target market, yet unexpected

    • (unexpected = novel, unusual, original, unique, new, different, revolutionary)

  • It must “call out” to your customers

  • It must make a real difference to your customers

  • The only difference that matters to customers is the experience they receive

• Dramatic & Meaningful Difference gets you noticed, remembered, and acted on by customers

• Make sure you can explain it simply to someone who is not knowledgeable in the field

• Can a 12 year old understand what makes you unique?

• Take whatever you think makes you different and multiply it by 10. Be boldly unique

• Dramatic and Meaningful Difference is the greatest weapon a small business has in competing with large companies.

  • As a company gets larger, its courage tends to get smaller

  • Larger companies tend to play it safe rather than trying to be unique

• Dramatically different ideas are usually hard to execute – they challenge you operationally

  • Is it a sustainable, defendable difference?

  • Can you execute effectively?

  • Is there a barrier to competitors copying you?

  • Dramatic differences cause you operational chaos and stretch you to deliver, and can invoke initial resistance from staff

• To be dramatically different is hard work – but worth it (353% more worth it!)

• You must continually develop your Dramatic Difference – if you are successful you will eventually have “me too” competitors

• What starts as a monopoly soon becomes a commodity

• Data shows that 80% of all copycat products fail – (but their entry into the category has the effect of lowering category margins)

• Always focus some of your resources on creating the “next big idea” for your uniqueness

• Being “new” and “having news” is the #1 driver of advertising success

Common mistakes with Dramatic and Meaningful Point of Difference:

• Delusion – refusing to face the fact that your company is not truly dramatically different

• Your uniqueness is too easy for competitors to copy and implement

• Exaggerating a difference based on minor distinctions that require “insider knowledge” but are irrelevant, or not easily understood

• SOS = “Same Old Stuff” - Having a “me too” product or service and hoping that a better marketing message will produce a miracle

  • Your Dramatic and Meaningful Difference must be built into your product or service

  • You uniqueness must come from within

• Shallow gimmicks

• Solving yesterday’s problems

How to craft a Dramatic and Meaningful Difference:

Be a Pioneer

• Having a future focus is 10 x more predictive of success

• Lead your marketplace – don’t copy

• Do not ask customers what they want. Innovation does not come from customers

• Customers don’t know what they don’t know. No customer asked for an iPod.

• Anticipate the future needs of customers. Vision takes courage.

• Pioneer companies enjoy a 4 x sustained advantage – they can command ongoing premium pricing over clones

• Create the news – be the first to offer a “….”

• Create new market categories – position yourself as leader

• Claim a dramatic point of difference

• Pursue change even when you don’t have to

• Learn more about your customers and your industry every week

• Make learning a daily activity

• Be open to new information – new facts

• Be prepared to change your mind with new information

“An excessive customer focus prevents firms from creating new markets and finding new customers for the products of the future. They unwittingly bypass opportunities.” (Harvard Business Review)

“A customer can seldom say today what new product or service would be desirable in 3 years from now, or a decade from now. New products and services are generated, not by asking the customer, but by knowledge, imagination, risk, trial and error on the part of the producer, backed by enough capital to develop the product or service and to stay in business during the lean months of introduction” (W Edwards Deming)

Pursuing dramatically different ideas takes courage

It takes courage to lead customers into the future

Blunt Overt Benefit

“What’s in it for me?”

Blunt Overt Benefit = “What” you are offering to your target market customer

Having 1 blunt overt benefit will nearly triple your chances of marketing success

• Customers stay with the status quo until they see an overtly appealing alternative

• Be blunt. The more obvious it is what you do - the increased chances of success

• Focusing on benefits instead of features is critical for marketing success

  • Features = facts, figures, technology, details about your product / service

  • Benefits = what’s in it for the customer? What do they receive, enjoy or experience?

• Engineers, scientists, and technology driven companies are prone to making the mistake of focusing on features – and communicating their love of the technology

  • For every feature ask from the customer’s perspective – “So what?”

• Benefits must be specifically related to your target market customer

• Tell customers exactly what you will do for them in a direct, easy to understand manner

  • Is it specific about what’s in it for the target customer?

  • Is it clear and obvious?

  • Does it excite and compel?

  • Is it unique vs. the competition?

  • Does it work visually as well as when said out loud?

  • Is it easy for customers to spread via word of mouth?

  • Does it travel well? E.g. the game of Chinese whispers – does the message stay the same as it is passed on from person to person?

• Research shows you need to be blunt and overt in order for your target customer to “get it”

• It’s not boasting when you can really deliver

• The clearer you are about what you do, the more customer word of mouth referrals you get

• Being clever and obscure does not create customer curiosity, they simply reject you

• Can a 12 year old tell what your company does by looking at your business card? By looking at your branding? Your tagline? Your advertisements?

• It’s OK for a customer to say “NO” because your Overt Benefit does not apply to them (i.e. they are not your target market customer)

• It is inexcusable for a target market customer to say “NO” because they do not understand your Overt Benefit

• Sometimes people fear that they might insult the intelligence of their customers if they are too blunt & overt

  • Don’t worry you can’t. You will attract the right customers for the right reasons

  • Being blunt and overt ensures the enquiries you get from your marketing will be pre-qualified and already interested in exactly what you are offering

• The more you focus on doing 1 thing great, the greater your chances for success as a brand

• Analysis of over 4000 concepts shows that if you offer more than 1 or 2 benefits - you lower your chances of marketing success.

• The strongest brands and strongest companies offer 1 focused benefit

• There are many cars, but few “real brands” that are associated with 1 benefit

  • BMW – driving

  • Volvo – safety

  • Toyota – reliability

  • Mercedes – engineering

  • Ferrari - speed

• Contrast this with brands that try to be all things to all people

  • Ford = ?

  • Chrysler = ?

• When customers hear your brand name, what 1 benefit do you want to come to their mind?

  • Ask your customers what 1 thing comes to mind when they hear your brand name?

  • Ask your staff what 1 thing do we offer our customers?

  • Are they all saying the same thing? If not – you have work to do

• People fear that by focusing on 1 thing, they will limit their customer base. They think that by promising everything they will broaden their business potential. However, the data shows the more you dilute your focus – the more you limit credibility and customer appeal.

• When you proclaim and then deliver excellence in 1 specific area, it gives credibility to your entire business. Rather than limit your customer base, you can actually grow as perception of your excellence and focus. Customers assume that if you do 1 thing great, you must have excellence in other areas too.

• The most difficult, yet important decision is to decide what you are not going to be.

• You may feel like you are giving something up, but saying NO to promoting other offerings gives you a greater chance of success. Saying NO enhances your employees’ effectiveness

• Your 1 Blunt Overt Benefit is actually your brand / company mission – it focuses your employees on what really matters

• Your Blunt Overt Benefit is what your brand stands for, what your company stands for

• Your Blunt Overt Benefit can be either rational or emotional – the data shows there is no difference in their effectiveness. The key is to do 1 thing great and focus.

• When a customer buys your product or service they are buying the “end result” they can visualize in their mind

  • What is the defining moment of success for your product or service?

  • How could you show the end result visually?

How to find your Blunt Overt Benefit:

• What is the reason you got into business in the first place?

• What problem did you set out to solve?

• What are you most proud of / excited about regarding what your company offers?

• What would your most loyal customers boast most about what your company offers?

• Complete this statement: We are the best / first / only company to offer….

Common mistakes:

• Providing a solution (or inventing something) to solve a non-existent problem

  • This is the #1 mistake. The customers must have tension for change

• Selling the absence of a problem - instead of a positive benefit

  • Instead of saying “no preservatives” it is better to sell your health benefits

  • Selling “we don’t have a negative” requires customers to know that all other products have that negative. When you ask customers to do more work - you get fewer sales

• Assuming customer knowledge

  • Make sure a 12 year old level of comprehension can understand your benefit

• Selling “low prices”

  • The only time you can “own” this benefit on a sustainable basis is if you are large enough to have economies of scale or are vertically integrated to the extent that you have a sustainably lower cost of production (e.g. Wal-Mart, Dell, Southwest Airlines)

  • Do not market “low prices” unless you truly have lower costs than your competitors

• Being too humble

  • Being overt can feel like boasting - some people are scared to blow their own horn.

  • It is not boasting when you are telling the truth and you can do what you say

  • Beware of comments from close friends and focus groups – who tend to try to water down your offer – because they are familiar with your offer and will say “You don’t need to say that, we know that”. The real world is not familiar with your offer. Your business has mere seconds to get a customer’s attention. Be blunt and overt.

• Doing what everyone else is doing

  • Your overt benefit needs to be unique. If you “play safe” and offer the same things as your competitors you will have no impact.

Real Reason to Believe

“Why should I believe you?”

Real Reason to Believe = “How” you are going to make good on your promise

You are 2 x more likely to succeed if you combine your Blunt Overt Benefit with a Real Reason for them to believe you

• Customers will not commit to purchase until they perceive a Real Reason to Believe that you will deliver on your Blunt Overt Benefit

• You need to provide evidence that you will do as you promise

• Your Blunt Overt Benefit is “what” you are offering. Your Real Reason to Believe is “how” you are going to make good on your promise.

• To succeed in marketing you need the “what” and the “how”

• Customer evaluation of your Real Reason to Believe happens in a split second

• Overt Benefit generates the interest; the Real Reason to Believe is what closes the sale.

• “Real” = you must tell the real truth. Authenticity is the #1 most important personal value

• Customer trust in marketing messages and product and service claims is at an all time low – after having been duped by companies’ and politicians’ hype for far too long

• Real Reason to Believe is built or diminished by small actions e.g.

  • Clean uniforms and clean sign-written trucks increase your credibility

  • Staff answering the phone professionally and courteously increase your credibility

  • Dirty food trays on a airplane make you question the airline’s engine maintenance, and decrease your credibility

• Credibility is like a bank balance. Today you start with a negative credibility balance and need to build trust. 93% of customers do not believe advertising anymore.

• When customers trust you they:

  • Are more willing to make the purchase.

  • Will drive further to do business with you

  • Will be more loyal

  • Will pay more, and be less tempted to shop elsewhere for a cheaper price

• Successful TV infomercials that stay on the air for a long time provide some of the most effective examples of Real Reason to Believe. They provide:

  • Visual demonstrations

  • Customer testimonials – aimed at converting skeptics

  • Common sense explanations of how the product works

  • Verification of the expertise and pedigree of the inventor of the product

• Bricks and mortar stores have an advantage of more credibility than infomercial companies or internet companies because people can see and try products for themselves and know they can come back and present any problems to real people

• Internet companies need to provide as many Real Reasons to Believe as they can

Real Reasons to Believe strategies:

• “Kitchen logic”

  • Use common sense language to explain in a direct and straightforward manner why you can deliver your Blunt Overt Benefit e.g.

    • We make the most durable jeans – because we use triple-thick denim

• “Personal experience”

  • Demonstrations are more effective than testimonials

  • Let customers see, feel and experience your brand

  • Sampling

    • Sensory feedback – see, smell, feel, taste, touch, experience

  • Demonstration

    • Includes “before & after” photos

    • Images of a product being used in extreme circumstances (so customers can imagine how well it performs in their ordinary personal circumstances)

• “Pedigree”

  • Detail the heritage of your brand

  • “Development pedigree”

    • Describe the design, creation, recipe, or process behind your brand

    • (Remember these types of Real reasons to believe are not your overt benefit – they are simply reasons to believe you can deliver your overt benefit)

  • “Marketing pedigree”

    • Use market data to communicate credibility e.g.

      • “The #1 selling XYZ in …”

      • “Winner of the ABC award 2 years in a row…”

  • “Trademark pedigree”

    • Use a trademarked brand name that is already trusted to endorse your new brand – e.g. line extensions

    • The danger is when companies use line extensions to stretch their original trusted brand into another category that is beyond what it currently stands for

• “Testimonials”

  • Either from customers or experts (get their signed permission)

  • Celebrity endorsements (For celebrities to add credibility, the fit needs to be right and they need to be perceived to have some expertise in the area)

• “Guarantee”

  • The power of your guarantee is directly linked to the level of risk your company is perceived by the customer to be taking

  • Keep fine print to a minimum – you must maximize customer confidence, not reduce your legal risk

  • Be bold & confident in order to give your customers peace of mind

Common mistakes with Real Reason to Believe:

• Not big enough reasons

• Not enough reasons. When in doubt, add more

• Irrelevant reasons

  • Needs to be synergy between your Blunt Overt Benefit and Real Reason to Believe.

• Are your marketing communications saying the same message in all your media channels?

• Are your staff all saying the same messages about your company (on the phone / at trade shows etc)? When the messages are different you lose credibility with customers

• “Me too” reasons – following the rest of your industry (“they all say that”). The more a strategy is used in a category the less credible it becomes e.g.

  • All scotch whiskeys talk about their pedigree

  • All mail order companies offer a money back guarantee

  • (You need to come up with a unique strategy to break the cycle of cynicism)

• Destroying your own credibility

  • Usually done by lawyers inserting fine print to limit company liability

The 3 Laws of Capitalist Creativity

1. Explore Stimuli

2. Leverage Diversity

3. Face Fears

• Brainstorming is not effective or efficient = the “suck” method of creativity

• Brainstorming is 50 years old. Data shows brainstorming does not work well in business

• Create a multi-sensory stimulating environment = 2 x more creative ideas developed

• Leverage diversity – surround yourself with people who think differently to you (different cultures, ages, backgrounds, thinking styles etc)

• Let people write their own ideas / solutions individually first

• Then people present their written ideas to the group

• Don’t worry about practicality of ideas in the initial stages

• Generate many ideas

• Suspend judgment

• Drive out fear – encourage dissension and debate

• Left brain people are just as important as right brain people in the creative process– leverage both styles

• Right brain = energy to lead change

• Left brain = doers = turn dreams into reality = bring discipline to the creative process

• Experiment on small scale. Fail fast – fail cheap

• “It is not the strongest that survive, nor the most intelligent, but the ones most responsive to change” (Charles Darwin)

• Take risks – the players who hit the most home runs have the most strike outs

• Courage comes from believing you are making a difference

Ram Charan,
Publisher: McGraw-Hill
ISBN: 0071626166


This is a synopsis only. RESULTS.com recommends you buy the original book.

Chief Executive Officers

Leaders overestimate how well they will fare because that is what they want to believe. You need to prepare for the worst right now - or you will put your company at risk.

Your focus must shift from the income statement to the balance sheet. The most critical metric now is cash (working capital). Monitor cash, inventory, accounts receivables – every week at minimum - even daily! Lack of liquidity is lethal.

Revise your cash flow forecasts with pessimistic revenue assumptions. Will you still breakeven?

Focus on cash efficiency - not growth. Face the reality that you may need to shrink your company to survive.

Narrow your focus - Concentrate on the core. Simplify. Fewer customers, fewer products, fewer facilities, fewer people, fewer suppliers - and a stronger company. You will emerge smaller - but stronger, better, more flexible, and better positioned.

Do not short change the future though. You must still invest wisely in the right areas to ensure payoffs in the future.

Get real time, ground level intelligence from your front lines in order to make faster, better informed decisions. Get close to customers and suppliers. What are they seeing? How are they feeling?

Strategic planning and target setting should be revised more frequently. Make modifications as situations change. Annual planning and budgeting is far too long. Your current strategy may become quickly obsolete.

Instil courage in your team by being present, being authentic, confronting reality, telling the truth, and taking steps to address it decisively.

Leaders who were successful in good times may not be up to the challenges confronting them today (anyone can look good in a rising market) - and many became arrogant with the success they achieved by pursuing aggressive growth at all costs through leveraging and taking risks.

Now you need to be a real leader - to be able to lead your people through the storm and develop a credible plan to do that.

Be bold. Defensive cost cutting is not enough. You also need to make the right offensive moves - to grab market share - to acquire assets - to invest in core competencies.

Be hands on - working at the front lines with your team down in the trenches.

Reduce costs and headcount surgically. Across the board cuts are stupid.

Cut costs before your revenues decline. Get ahead of the curve.

Build close relationships with customers. How can you add extra value to your strong customers?

How can you reduce your ties to weak customers who may go belly up - or to those that cost you a lot of cash to service (make you hold a lot of inventory / are slow payers etc)?

Sales & Marketing

Salespeople who are order takers will not cut it in this environment. You must understand the customer's pain and provide customized solutions that enable you both to succeed (win – win).

Salespeople will need to become more analytical and understand the importance of both margins and cashflow.

Salespeople must provide their company with ground level intelligence of what is going on in the marketplace. This information must be documented and shared where all functions in the firm can be made aware of it.

Be wary of selling to firms who are likely to be bad payers. Sales goals and incentives will need to be re-thought (e.g. Salespeople might be better if they are incented for collecting cash). Some customers will need to be dropped.

You may need to revise your value proposition - but beware of losing your brand identity - or cheapening your brand.

Chief Financial Officers

CFO's will need to manage cash effectively and ensure debt obligations can be met

Show your people – using visual examples - the impact on the financial statements of:

• a drop in revenue

• a decrease in gross margins

• how reducing overhead expense items directly improves profit

• how an increase in inventories or accounts receivables ties up cash

Develop dashboards to keep the financial picture visible – and help people confront reality.

Revise budgets monthly if necessary to reflect the changing reality.

Budgeting should not be an annual exercise based on last year plus or minus certain % for each line item. Each line item must be recast based on new projected reality – every quarter or even every month if necessary.

Return on Investment (ROI) may not be the only measure of capital allocation now. The timing of cash flows may be a higher priority in terms of where you invest your money.

Some projects may need to be abandoned regardless of sunk costs or emotional attachments

Chief Operating Officers.

COO must understand the likely new break-even point – before falling revenues become a reality and be able to rapidly adjust capacity to suit the new lower level of demand.

Understand the long term implications (consequences) of any cost cutting measures - e.g.

• Can you quickly scale up again when demand improves?

• Will you lose key capabilities or relationships?

• If you reduce R&D, will your competitors gain an edge when things improve?

• If you reduce maintenance spending will it have costly consequences in the future?

Simplify and reduce product lines. Retain the core activities. Outsource everything else

Manage inventories - they are a huge cash trap. Adopt “Just In Time” inventory management - or even “Produce on demand”. Simplify and speed up your supply chain.

Maximize capacity utilization - and be able to quickly vary staffing levels according to demand.

Recognize & retain employees who have the highest engagement and customer satisfaction scores.



Zero based thinking – if you had to start this project again now – would you still do it? Analyze which projects are critical to the future and which need to be abandoned.

Your toughest decision as a leader will be where to make cuts - and where to focus and increase investment.

This can be a good time to get the right people in the right jobs. You will now see who the real players are - who to keep and who to let go. People who could do well in good times may not be tough enough, decisive enough, or fast enough to adjust and make the necessary changes to meet the challenges now.

Training should be maintained – but be specific to current issues.

Compensation needs to be revisited to make sense in light of this new reality.

New targets need to be set by the board of directors. It may not be about growth, rather how to survive and outperform other competitors in your industry. Many companies will become smaller in the next couple of years and many will disappear.

Beware of cutting things without taking into regard their future impact.

Plan for worst case scenarios – but then work to make things better.

Little Red Book of Selling - Jeffrey H Gitomer

by Al Ries and Jack Trout
Publisher: New York : McGraw-Hill
ISBN: 007052730X

This is a synopsis only. RESULTS.com recommends you buy the original book.

Marketing Warfare

War is often used as a metaphor for business, but most authors are unaware of military strategy and what really works. The study of warfare is a study of how to win, and how not to lose.

The principles of military strategy have been refined & perfected over 1000’s of years. Marketing as a discipline is less than 100 years old.

It’s not about aggressiveness and fighting. The best approach is seldom a direct head on attack. (i.e. it is a mistake to market the benefits of your product X vs the competitor’s Y)

Instead, ask yourself, what is most likely position to take that will undermine the competitor’s position?

Apple is good example – it stopped going head to head with Microsoft, and outflanked it by launching iPod.

Aim to be the first to offer a something in a new category

The Principle of Force

Superior numbers wins most of the time (biggest sales team, biggest marketing budget)

Quantity overcomes quality most of the time (Microsoft / Coke etc dominate over better quality products).

You don’t win with better people, product, service – you win with better strategy

You must accept customer perceptions as their reality, and focus your marketing accordingly. The customer defines who is the leader in each category.

You can’t change customers’ perceptions once they have been formed with your “so-called truth” about who has the best quality product.

You don’t win with a better product, you win with better perception (positioning)

The Superiority of Defense

It is hard to take customers (territory) off a company that already occupies it

People fight harder to resist losing something they already think they have

You need to gain your own high ground (perception of leadership).

It’s easy to stay on top of the hill, hard to dislodge someone off it

Avoid entrenched competitors

Market research – don’t ask people what they want, ask how they perceive you and your competitors

Don’t try to control everything (line extensions). Spread yourself too thin and you are liable to attack on a narrow front from a focused competitor

The 4 key strategies

Out of 100 companies

1 = Market leader playing defense
2 = Offence – competitors being opposite of the leader
3 = Flanking
4 = Guerilla

1. Defense

Only the dominant market leader should play defense

The best strategy for dominant leaders is to attack yourself. Create new products that make your old ones obsolete – (Gillette introduces new razor blades every couple of years etc)

Strong competitive moves should be blocked (Shick releases Quatro = Gillette counters with 5 blade razor). Bock them as they land on the beaches – don’t let them get a toe hold on your territory

By retaliating quickly a large company can protect its territory from more innovative, nimble companies

Block them asap with covering products, and bring economies of scale pricing to bear in terms of pricing. Aim to contain their growth with a blocking product, and go back to focus on creating a new innovation to make your old product obsolete

2. Offence

Go on the offence if you are a strong #2 or #3 brand

Be the opposite of the leader and focus your attack at that point

Find a weakness in the leader’s strength (a strength that they can’t change the market perception of easily).

Attack on as narrow a front as possible. (Don’t do line extensions)

Keep your forces concentrated. Bring the greatest number of your team into action at a focal point

Ask what word do you want to own in the customer’s mind? (one that is the opposite of the leader)

3. Flanking

Go around the competitors. Make a move into an uncontested area.

Create a new category – be the first to occupy this ground. The element of surprise is important

The pursuit is as critical as the attack – you need to pour it on once you get a foothold – to gain the leadership perception before a large competitor launches a “me too” defensive product

Reinforce success, abandon losers quickly. Don’t spend resources throwing good money after bad

Don’t try to be all things to all people. Keep your forces concentrated

High priced, exclusive products can outflank incumbent giants in a way they can’t counter easily (e.g. Absolut Vodka launched at 50% higher price than leading brand Smirnoff).

Use different packaging, distribution, price, design – compared to incumbent products

Don’t ask customers what they want – you need to be innovative and creative, and then generate as much PR as possible (keep it secret – use the element of surprise so incumbents are caught unable to respond - then pour it on)

When creating a new category, don’t look at advertising Return On Investment. In the crucial early times, you should be asking, “How much do we need to spend to ensure victory (ownership of this new category)?”

4. Guerrilla Warfare

Most companies in the world should play guerilla warfare

Find a segment small enough to defend. Pick a segment small enough that you can become the category leader.

Become a big fish in a small pond (focus geographically / by industry / by price point – e.g. Rolls Royce)

Go narrow and deep rather than broad and shallow. You have limited forces. Focus.

Never act like the leader (never introduce line extensions etc)

Don’t be greedy – position yourself as far away from the leaders as you can

You are not trying to take customers from someone else (as per a flanking strategy) – you are in a market all your own (Rolls Royce does not try to line extend down market to compete with Mercedes etc)

Be contrary. Defy conventional wisdom. Do the opposite of what MBA’s recommend.

Have lean and mean operations. Limited support staff. Make quick decisions.

Jump in, jump out. Be prepared to run away to fight another day

Form alliances – band together for self preservation (Century 21 / Quality Inn)

Strategy follows tactics.

Tactics first – then strategy.

Most companies decide their strategy then look for tactics to make the strategy work

Better to find a tactic that works, then build it into a strategy

Strategy should evolve out of the mud of the market place – what works in the field, not out of some ivory tower

Be like the battlefield general - not the conference room CEO

Mastering the Rockefeller Habits -  Verne Harnish

Never Eat Alone - Keith Ferrazzi, Tahl Raz